This week ESMA, the pan-EU financial regulator, published (click here) its 31-page Final Report (click here) on amendments to certain technical standards for commodity derivatives following this consultation held earlier this year.
What is it about?
- In May 2024 ESMA launched a consultation on changes to the rules for position management controls and position reporting for commodity derivatives under MiFID 2. In February 2024 several commodity derivative-relevant revisions were made to the Level 1 text of MiFID 2 and MiFIR (click here) with these changes due to start applying on 29 September 2025;
- In its final report on the topic, ESMA responds to queries raised in the consultation and sets out their final proposed amendments to the Regulatory Technical Standards (RTS) on position management controls, Implementing Technical Standards (ITS 4) and its technical advice on position reporting in Commission Delegated Regulation (CDR) 2017/56;
- For the RTS, ESMA proposes to extend the general monitoring obligations and the requirements to set, review and report accountability levels to trading venues for the trading of derivatives in emission allowances.
- Regarding ITS 4 and the technical advice on position reporting, amendments (as originally proposed) include the exclusion of spot emission allowances from position reporting and a new obligation to publish a second weekly position report which excludes options under certain circumstances.
ESMA’s way forward on each area of the respective amendments are set out below:
1] Amendments related to position management controls:
- ESMA is not introducing any change to the RTS on position management controls presented in the consultation despite the majority of respondents supporting the approach put forward in the consultation;
- Regarding accountability levels, ESMA notes that the responsibility of setting, and ensuring compliance with, accountability levels lies with trading venues and that these limits are not aimed at constraining trading, but they rather serve as a tool for trading venues to enhance monitoring of positions on their platforms;
- As such, accountability levels should act as a potential alarm which may trigger additional actions from the trading venues - the draft RTS therefore provides trading venues with flexibility as to the methodology for setting the limits as well as the follow-up actions to be taken towards position holders;
- Regarding the burden placed on Venues under the new proposals, ESMA believes that trading venues should have sufficient information on the underlying markets which should ease their task of setting accountability levels and the benefits of increased market oversight would be justified;
- Regarding the scope of the application of the RTS requirements, ESMA notes that Article 57(8) of MiFID II refers to an investment firm or a market operator operating a trading venue and does not distinguish between regulated markets (RMs), MTFs and OTFs - on that basis, they believe that position management controls under the RTS should apply to all types of trading venues and not only to regulated markets.
2] Amendments related to position reporting:
- ESMA has not introduced further changes to the Technical Advice to the EU Commission and on ITS 4, the only changes compared to the version proposed in the consultation is a clarification regarding the use of LEIs and the deletion of the amendment introducing JSON as reporting format requirement;
- Regarding the 10,000 lot threshold from Article 83(1)(b) of CDR 2017/565 for energy derivatives, ESMA intends to address vagaries with regard to energy derivatives that are not reported in lots via a Q&A – a publication date for this is not specifed;
- Regarding the suggestion to classify front-year December contracts as spot contracts in the field “Position maturity” for emission allowance derivatives, ESMA believes that this field should be populated consistently for all derivatives regardless of the underlying - contracts with emission allowances as underlyings should therefore be classified as SPOT when their expiry takes place in the current calendar month;
- ESMA agrees that reported LEIs should conform with the Global Legal Entity Identifier Foundation (GLEIF) Regulatory Oversight Committee policy (ROC) and has added a statement in Table 2 of Annex II of ITS 4;
- ESMA has removed the proposal of JSON as common reporting format from the draft ITS for the purpose of position reporting despite overall positive feedback to mitigate the implementation burden on market participants and NCAs;
- ESMA clarifies that weekly position reports should be published if the criteria in Article 83(1)(a) and (b) of CDR 2017/565 are met by combining futures and options. In such cases, both the report on combined futures and options and the report excluding options must be published;
- If the open interest of futures alone would not meet both conditions but the open interest of futures and options combined would meet both conditions, both weekly position reports should still be published.
The amended draft technical standards will now be submitted to the EU Commission for adoption. The Commission will need to decide whether to adopt the technical standards within three months.
